Chapter 2: Federal Gift Tax Flashcards
What are the differences between Federal Estate tax and Federal Gift Tax?
2.1
- Gift splitting is possible only with gift tax
- Annual exclusions only apply to gift tax -Gift tax is tax exclusive, Estate tax is inclusive
- tax basis for a gift is the donor’s tax basis, estate gift is stepped up in basis
What are the similarities between Federal Estate tax and Federal Gift Tax? 2.1
-Unlimited marital deduction between spouses -Unlimited charitable deduction -Both have an Applicable Exclusion Amount ($11,580k) -Both have an Applicable Credit Amount ($4,577,800) —note that the credit is simply the percent of exclusion amount— -Cumulative
Are you better off gifting assets or holding assets? 2.1
Gifting because gift tax is exclusive, estate tax is inclusive If you had $140k: -Gifting $100k means you pay $40k to the gov -passing on $100k means you pay $56k to gov
What are gift tax return requirements? 2.1
-IRS Form 709 (706 is 6 feet under) -Due with regular tax return -Donor or donor executive must file it -The gift valuation date is the actual date that the asset was completed
What is required for a gift to be valid? 2.1
-Completed transfer -must have valid acceptance by the donee
How are gifted securities valuated? 2.1
Value of securities = average high and low price on the date of the gift…
If the security is not traded on date of the gift ( like if it were saturday) then calculate by:
- Calculate FMV for last traded day
- Calculate FMV on next traded day
- Determine number of biz days between gift date and first trade date
What are chapter 14 rules?
2.1
2701: Corporate and partnership recapitalization
2702: Grantor Retained Trusts
How do you calculate gift tax?
2.2
Start with total tentative tax
— subtract prior taable gifts x tax rate
= current tentative tax
— unused applicable credit
— foregin gift tax credit
= net gift tax
What are exclusions from gift tax?
2.2
- Contributions to political organizations
- Direct payment of someone’s med expenses
- Direct payment of someone’s tuition
What are subtractions from gift tax?
2.2
- Split gifts
- Annual exclusions
- Marital deductions
- Charitable deductions
What is gift splitting?
2.2
- Splitting between spouses so $30k can be gifted
- If there is any gift splitting, then all gifts must be split
- Both must consent to the gift
- At least one gift tax return must be filed
- they don’t have to file a joint return
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Explain the difference between present and future interest gifts.
2.2
- Only present value qualifies for the annual exclusion
When are assets entitled to a marital deduction?
2.2
- The property must be a non-terminable interest
- If the spouse can’t control where the asset will go at their death, then the marital deduction is not allowed
What are Qualified Charitable Distributions?
2.2
-
Purpose: be able to make a direct transfer from a qualified account to a charity. This could be the RMD.
- Can’t do it until 70.5
- Limited to $100k per year
- It is not recognized as taxable income
- It is not deductible bc you technically never received it
- QCD can’t go to a doner advised fund
WHat is a charitable remainder trust?
2.2
- The remainder of the assets in the trust will go to charity
- The trust is irrevocable
- Tax exempt entity
- Could be a (CRUT) charitable unit or (CRAT) charitable annuity
- Unit is based on performance
- Annuity is a fixed payment
- 20 year term limit if a term
- Payout must be between 5% and 50%
- Only CRUT allows for additional deposits
- The charital remainder must be >= 10%
Ex: Someone puts $1m of apple stock into a charitable check
- Gets an upfront charitable deduction for the total amount less what the donor will get back
What is a charitable lead trust?
2.2
- The charity gets an income stream from the trust but the family gets the remainder interest of the trust at death
- Irrevocable
- Typically an annuity trust
- Not subject to the same max annuity payout
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What is a pooled income fund?
(PIF)
2.2
- Typically for universities
- Allows you to put money into a fund and get an income stream
- Whatever the fund returns is what you get as an income stream
- Can’t be trustee at the colleege if you’re in the PIF
- Qualifies for the marital deduction if the spouse is the beneficiary
- They are run by a trustee
What is a charitable stock bailout?
2.2
- For closely held stock
- Stock is gifted to a charity
- Company gets a deduction
- Corporation redeems the stock
- Corporation is not under a legal obligation to redeem
- Purpose: Deductions
- Present interest
A small business gifts stock to a charity with the plan of buying it back. They get a deduction.. Essentially they are funnelling the stock from the shareholder to the charity and back..
What is a charitable bargain sale?
2.2
- Sale to charity for less than full market value
- You get a deduction for the discount that you give on the sale to the charity (difference between FMV and what they paid)
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What is a charitable gift annuity?
2.2
- Someone gives an asset to a charity but the charity can’t use the asset until the terms have been met
- The charity pays an annuity fixed payment
- Only do this with a well established charity
- Present interest to the charity
When must a gift tax return be filed?
- whenever a married couple elects gift splitting
- If tehre is a future interest gift
What form is used to file gift tax?
IRS Form 709
How is the donee taxed on a gift?
Property received by a donee is not taxed as income unless the donee sells the gift.
The donee assumes the donors tax basis on the gift.
When must a gift tax return be filed?
